Published On: Wed, Jan 21st, 2015

Economists Question Facebook’s Claim of $227 Billion Economic Impact

Mark Zuckerberg

A new study says that Facebook generated $227 billion worth of economic impact in the 12 months ending October 2014 by supporting new jobs and connecting businesses with customers, but some economists are skeptical of the findings, a report said.

The study credits Facebook with supporting 4.5 million jobs worldwide by virtue of being a platform for marketers and app developers. Beyond job creation, the study touches on Facebook’s ability to help marketers boost sales, developers monetize applications and allow people in developing countries to “take part in the digital economy, ” which “stimulates economic impact”, said.

The study looks at the businesses that maintain pages on Facebook as well as the mobile apps and games that consumers play on Facebook and measures all the economic activity that result. It also considers the demand for gadgets and online connectivity services that are generated by Facebook, Reuters said.

The research was commissioned by Facebook and carried out by consulting firm Deloitte & Touche, according to Reuters.

However, independent economists said Deloitte and Facebook used questionable assumptions in the report, valuing each Facebook “Like, ” and assigning Facebook credit for roughly one-sixth of smartphone sales, the Wall Street Journal said.

“The results are meaningless, ” Stanford economist Roger Noll said the Journal in an email. “Facebook is an effect, not a cause, of the growth of Internet access and use.”

Facebook Chief Operating Officer Sheryl Sandberg disagreed. “We know Facebook is one of the main drivers of why people buy phones, particularly in the developing world, ” she said. “People will walk into phone stores and say ‘I want Facebook.’ People actually confuse Facebook and the internet in some places”, according to the Journal.

“People believe that technology creates jobs in the tech sector and destroys jobs everywhere else, ” Sandberg told Reuters in an interview on Friday. “This report shows that’s not true.”

According to Sandberg, Facebook is helping create a new wave of small businesses in everything from fashion to fitness. She cited a group of young women in Bengaluru, India, who started a hair accessory business using Facebook and a mother in North Carolina who started a line of clothing, selling to customers through Facebook, Reuters said.

The study comes as many established industries are critical of Web startups such as ride-sharing service Uber and home-sharing service Airbnb. Critics contend that the services circumvent regulations and threaten established taxis and hotel businesses, the report said.

“We’re no longer in a place where large companies can create the jobs the world needs, ” Sandberg said.

The study’s release was timed with the annual World Economic Forum meeting taking place this week in Davos, said.

The Wall Street Journal quoted Tyler Cowen, a professor of economics at George Mason University, as saying that Facebook likely has a significant economic impact, but not as great as the study suggests. He said Facebook likely doesn’t create nearly as many jobs as the study suggests, according to the Journal.

“The value of smartphones is that they help you read Facebook — in addition to other benefits — not vice versa, ” Cowen said, calling the study’s calculations “bad reasoning”, the Journal said.

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